Fed Stands Pat On Rates, Gold Rallies On Dovish Perceptions
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(Kitco News) - Despite more pressure from U.S. President Donald Trump to cut rates, the Federal Reserve announced that it is keeping its key benchmark interest rate unchanged following a two-day monetary policy meeting.
This was a widely expected decision, with investors largely focused on any clues as to the possible July rate cut. Prior to the decision, markets were pricing in a 74.2% chance of the Fed standing pat on rates during this meeting and a 63.8% chance of a rate cut in July, according to the CME FedWatch Tool.
The Fed’s announcement kept the federal funds rate steady at a range of 2.25% to 2.50%, with 9-1 Federal Open Market Committee voting to keep rates unchanged.
Immediately after the statement was released gold saw a jump and August Comex gold futures were last at $1,357.30, up 0.52% on the day.
“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased,” the Fed’s statement said.
The key things in this decision were the “dot plot” projections, lower inflation expectations, GDP projections and the Fed removing the word “patient” from its arsenal when referring to future policy moves.
The fresh “dot plot” revealed no rate changes in 2019 and one 25-basis point cut in 2020.
The “dot plot” projections represent anonymous and individual rate projections of Fed policymakers and are often treated by analysts as expectations of what to come. In the previous Fed’s dot plot projections released in March showed that no rate moves were expected for 2019.
The Fed slashed its inflation projections for this year from 1.8% to 1.5% while stating that its core gauge will also remain below the central bank’s target of 2%.
The Fed statement kept its median GDP projections for 2019 unchanged at 2.1% and revised its 2020 estimate up to 2%.